16 March 2001

America predicts a decade of bleak farm incomes

Two sets of forecasts of US farm incomes for the next

10 years were published last month. Both predicted the

same thing – that incomes over the next decade

will not rise above their 2000 levels. So will the US

government be prepared to continue its policy of big

bail-out payment to farmers? asks Alan Guebert

THE new Congress and the new Bush White House took a new look at American farm support programmes on Feb 15 and 16 and found that Congress, Bush and US farmers face the same problems, same poor prices and same poor choices in the coming year.

In fact, the outlook is worse than that.

On Feb 14, two days before Congress began its policy review, the Food and Agricultural Policy Research Institute (FAPRI), the farm economics forecaster for Congress, released its new 10-year baseline projection for American agriculture. In a phrase, FAPRIs view of the next decade for US farmers is bleak, bleaker and black.

For example, if the present American farm policy, Freedom to Farm, is continued after its 2002 closing date and normal weather occurs, FAPRI forecasts US net farm income will plummet from $45.4bn (£30.3bn) in 2000 to $36.3bn (£24.2bn)in 2002, or nearly $20bn (£13.3bn) less than it was in 1995, the year before Freedom to Farm (F2F) became the law of the land.

Worse yet, should F2F be maintained from 2003 through to 2010, FAPRI estimates it will take the entire decade for farmers to climb back to 2000s sickly $45bn (£30bn) income level. But that isnt exactly accurate either: If inflation is squeezed from that figure, the entire 2010 American net farm income will equal just $35.5bn (£23.7bn) in 1997 terms.

The smaller components of that big picture contain the bad news. From 2000 to 2010, for example, according to FAPRI:

&#8226 US maize export prices, given normal weather, will jog between $89/t (£59) this year and rise to just $117.50/t (£78) by the end of the decade.

&#8226 Likewise, the central Illinois price for soyabeans is forecast to flutter between $173/t (£115) and $218/t (£145) for 10 years.

&#8226 The projected US cotton price will not climb above 61c/lb (90p/kg).

&#8226 Pork prices will not top 46c/lb (68p/kg), beef prices will remain stuck between 67 and 77c/lb (98 and 113p/kg) and milk prices will average about $12.50/cwt (25p/litre).

FAPRI is not alone in its dark forecast. On Feb 22 the US Department of Agriculture released the annual update on its 10-year baseline. While a bit sunnier than FAPRIs, USDA estimates American net farm income will fall from 2000s $45.4bn (£30.3bn) to $35.6bn (£23.7bn) in 2002 before slowly rising to $50bn (£33bn) by 2008. Deflated, however, USDA sees net farm income for the next 10 years being less than 2000s poor amount.

What do both sets of forecasts show?

"Overall," says Keith Collins, USDAs chief economist, "they show a sizeable drop in net farm income over the next decade. In either set, there is not a pretty picture."

Most importantly, though, says Collins, the forecasts show exactly what American farm income will be "without supplement payments" – those big emergency bailouts of 1998, 1999 and 2000.

Indeed, FAPRIs baseline shows government payments to American farmers dropping from $32bn (£21.3bn) in 2000 to less than $8bn (£5.3bn) in 2010, hence the flagging income.

To others in Congress, the poor price pictures paint the need for action. "These baselines show Congress needs to do something – and fast," said one US senators ag specialist who asked not to be identified. "Were (Congress) under the gun to write a new farm bill this year, not 2002 when Freedom to Farm expires."

Maybe, but at the moment there is no consensus to open that can of messy worms.

Neither the Republican-controlled Congress nor the new Bush Administration wishes to tackle the task with so many other pressing Bush initiatives, like a 10-year, $1.6 trillion (£1.1 trillion) tax cut, to be considered this year. In fact, the Bush White House will probably push to stabilise, if not cut, ag expenditures over the coming 10 years to fund its massive, popular tax cut.

Farm groups, though, are getting their hands in place to plead for another multi-billion bail-out in 2001 and 2002 should Freedom to Farm remain. The National Farmers Union, with 300,000 members, already has asked Congress to budget an additional $100bn (£67bn) for farm programmes, or $10bn (£6.2bn) extra a year, over the next decade.

USDA economist Collins guesses Congress will be forced to deal, and perhaps honour, the request – given its soft touch since 1998. "It will be terribly hard for Congress to walk away from bailouts after giving an extra $25bn (£16bn) to American farmers in the last three years," he suggests.

True. And thats if the slumping US economy does not infect the rest of the world to drag domestic farm prices and farm incomes even lower. If that occurs, the "emergency" cost will rise farther and faster than anyone in Congress presently wants to even think about.